Target Corp. earnings slip while sales climb

By Don Hogsett -- Home Textiles Today, 11/20/2000

MINNEAPOLIS -Hampered by eroding margins and weakening earnings in its core Target Stores business, third-quarter profits at Target Corp. slipped by 7.4 percent, to $215 million from $232 million last year.

But led by double-digit sales growth at Target, and a continued burst of energy at Mervyn's, overall sales at the diversified retailer climbed higher by 8.2 percent, to $8.4 billion from $7.8 billion last year. The critical gauge of same-store sales rose by 2.9 percent, with the biggest gain coming from Mervyn's, with its 3.9 percent increase. Same-store sales at Target stores grew by 3.5 percent, while department stores posted a 3.0 percent decline.

Putting a crimp on the bottomline, pre-tax profits in the core Target Stores business declined by 6.1 percent, to $386 million from $411 million a year ago. But bounding back from earlier weakness, profits at Mervyn's jumped up by almost a third, rising by 29.5 percent, to $60 million from $46 million the previous year. Hammered in a weak selling environment, operating profits at department stores dropped off by 41.5 percent, to $47 million from $79 million a year ago.

Putting another big dent in earnings, margins thinned out due to a promotional selling season at both Target and the department stores. Pressured by the higher markdowns, average gross margin narrowed by 70 basis points, to 30.6 percent from 31.3 percent. Adding even more pressure, costs ratcheted up slightly during the period, rising by 20 basis points, to 24.0 percent of sales from 23.8 percent a year ago.

( ): Denotes loss

a-The prior-year nine-month period includes one-time charge of $13 million from the early retirement of debt. Excluding the one-time item, earnings rose by 7.4 percent, to $712 million from $650 million.